Unisys edges up day ahead of results

Services, hardware giant on tap to report quarterly loss

By

MichaelPaige

LOS ANGELES (MarketWatch) - Unisys Corp.'s stock edged higher Monday, tracking a slight overall rise among technology stocks, a day ahead of the tech services and hardware company's quarterly results that are expected to show a loss on weaker revenue.

The company's stock added 2 cents, or 0.3%, to finish the latest session at $5.90. Unisys' rise came as the tech-rich Nasdaq Composite Index
$COMPQ
also gained 0.3%. Unisys shares have ranged in price over the last 52 weeks from $5.68 to $11.83.

Unisys
UIS, -1.71%
is set to report on Tuesday that it fell into the loss for its latest quarter on a sales shortfall in both its services and technology operations, with overall revenue falling 4% to 5% from the year earlier period.

Along with scrutinizing where things went awry during the just-ended period, investors likely will be looking for the company's financial predictions for the current period and next year following its latest somber forecast.

Unisys, the Blue Bell, Pa., tech services and hardware giant, recently warned it would post an unexpected third-quarter loss on the weaker-than-expected revenue. See full story.

Wall Street analysts, on average, are looking for Unisys to post a loss of 17 cents a share, down from a year-earlier profit of 7 cents a share, according to a Thomson First Call survey of seven analysts.

The average of estimates calls for revenue for the three-month period to shrink 4.1% to $1.39 billion from $1.45 billion a year ago.

Unisys, which has struggled with several troubled large outsourcing contracts, predicted its net loss would range between 16 cents and 18 cents a share for the third quarter, including pension charges.

Excluding the pension costs, the company forecast a loss of 7 cents to 9 cents a share for the period. Previously, Unisys had expected to post a quarterly profit of 4 cents to 6 cents a share.

The lowered forecast included a charge of 2 cents a share related to a cash tender offer for some of its debt.

Unisys said revenue would come in between $1.37 billion and $1.39 billion.

The loss warning, which was accompanied by few details on the cause of the shortfall, met with downbeat reaction among analysts, who said the company also may lower expectations again this year and next. It also prompted a downgrade of its debt ratings by Fitch Ratings.

Jefferies & Co. analyst Joseph Vafi said the unexpectedly weak results underscore his "long-standing investment conclusion that Unisys' business model is challenged on many fronts."

The weakness in Unisys' sales, at a time when rivals are showing an ability to grow, "points to service and product offerings that lack market place demand and differentiation," Vafi asserted.

He also said in a recent research brief that the company's inability to turn a profit on nearly $1.5 billion in revenue suggests "a cost structure that remains overly large."

"Preliminary results for the third quarter imply that revenue and margins remain quite depressed," Vafi said. He rates the stock underperform with a $6 target price.

At UBS, analyst Jason Kupferberg said the shortfall reflects the tough execution challenges faced by the tech services and hardware firm as it has struggled with the troubled outsourcing contacts.

"Though details regarding the causes of the miss were not mentioned in the release, our concern is heightened by the fact that management indicated weakness in both the services and technology segments," the analyst said in a recent note to clients.

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